Apr 07, 2020

How to Calculate Your Payroll Costs for the PPP Loan

PPP loans, or Paycheck Protection Program loans, are potentially-forgivable small business loans provided by the US Small Business Administration (SBA) from a pool of $350 billion. This particular loan’s use is for maintaining payroll and incentivizing businesses to keep their employees on during the coronavirus (COVID-19) pandemic. As with all SBA loans, this application comes with some pretty specific requirements regarding the financial information of your small business. And, since no one likes getting stuck while filling out an application, we’re here to eliminate any surprises.

What’s Included When Calculating Payroll Costs?

One of the more crucial portions of the PPP application is where you’re supposed to input payroll costs. As you might expect, there’s a laundry list of items you can utilize when calculating such. So we’ve gone ahead and written it all out for you. 

Note that you shouldn’t include independent contractors when calculating salaries paid to employees—they can file for a PPP loan on their own. However, you’ll need to keep some additional exclusions in mind as you calculate your totals.

What’s Excluded When Calculating Payroll Costs?

These items should be excluded when calculating payroll costs for the PPP:

The Math Behind the Calculations

As potentially overwhelming as those lists may be, there’s no need to panic. As you start tallying up the totals, crossing your T’s, and dotting your I’s, your next step will be a bit of simple math to figure out what you need to write down on your application. Don’t worry—it’s not as crazy as it seems. 

Once you have the total amount from all of those above-listed items, you want to take that number and divide it by 12—this gives you your average monthly payroll costs. Now, take that new number and multiply it by 2.5. This new result is the maximum amount you can receive on your PPP loan, capped at a total of $10 million. 

Here’s a visual example: 

How to Calculate Your Payroll Costs for the PPP Loan

So again, it’s just your total payroll costs, divided by 12, then multiplied by 2.5. And, if you accidentally included salaries over $100,000 or those for employees based outside of the US, simply subtract the amount over $100K per employee and the total yearly salary of those non-US-based employees from your total payroll costs before dividing by 12. 

Pretty easy, right?

What if I’m an Independent Contractor or Sole Proprietor Without Employees?

If you fall into this category, you’re not alone. Millions of other hard-working Americans are worried about their chances of landing a PPP loan because they don’t fit the traditional small business model. Fortunately, you’re equally able to apply and receive this government aid as any other small business. The process is virtually identical.  

Just as you would if you were any other small business, go ahead and calculate your total payroll costs by adding up your income for the year (this number will likely be the amount you pocketed after covering business expenses). Then, just as in the other example, divide that total by 12 to get your average monthly payroll costs. Finally, multiply that number by 2.5 to get your estimated Paycheck Protection Program loan maximum. 

Other Things You Should Know

Now that you’ve mastered the art of calculating payroll costs, here are a few other items you might want to have ironed out before you tackle the Paycheck Protection Program (PPP) loan application:

Last of all, as you make your way through the application process with your friends here at Lendio, don’t forget that you’ll have a funding manager ready to help you every step of the way. As always, do as much research as possible to set the stage for success and help your small business stay on track for success during these troubled times. 


While every effort is made to ensure the accuracy of information when a story is published, the coronavirus pandemic and Paycheck Protection Program (PPP) have caused details to change at a rapid pace. Additional guidance from the government may change or clarify certain aspects of the forgiveness process and could result in changes to the information contained in these pages. For the most up-to-date information, please visit the COVID-19 section of our website. For more information, you can call us at (855) 853-6346. Lendio is not responsible for and provides no warranty as to the accuracy of this content. Lendio does not provide legal, accounting or tax advice. The information and services Lendio provides should not be deemed a substitute for the advice of such professionals who can better address your specific concern and situation.

About the author

Bjolan Holyoak
Bjolan Holyoak
Bjolan Holyoak is a small business finance writer based in Utah. As a copywriter for Lendio, he fuels the American Dream by giving small business owners the information they crave. He believes that with the right panache, financial information can be as much of a "breath of fresh air" as a hike in the Utah mountains.


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